BenQ Mobile – end of the story for Siemens

The history of German Siemens-branded handsets has finally reached the predictable end. What was intended to forge into the lead on the global market of terminals has ended up with a series of financial and social scandals, and now BenQ puts an end to all this. The tension has been intensifying since 2003, when the company’s management went for a couple of wrong decisions, and on top of that, tried to conceal its slips with demagogical rhetoric without making efforts to improve the state of affairs. It can be rightfully considered that the series 45 by Siemens was the peak of the company’s success, while series 55 and posterior line-ups have been dropping down in quality, and consequentially, in popularity on the market.

It can hardly be said that over at Siemens they didn’t realize the established situation – on the contrary, they did. But unlike other companies, this manufacturer made an attempt to overcome the hardships not by finding a way out on their own, but by shifting everything on others’ shoulders. Already in 2002 there were speculations on possible fusion of Siemens with one of the Asian manufacturers – the major given reasons were ever-increasing competition on the market and thus the need in relocation of main production facilities to Asia. Motorola’s name kept on popping up against the background of all these rumors roughly at one time every year. I will take risks of assuming that such statements were to the benefit of Siemens Mobile alone, as these speculations emerged only by the end of company’s financial year and thus influenced its shares. However, the market had gotten used to such “news” shortly and later on came to realize that the company would be sold, so that the buyer’s name was the only thing on everyone’s mind.

In the middle of 2005 it became publicly known that this “buyer” would be BenQ, unknown on the market of handsets up to that time and recognized only on the Asian market, where the company had moderate success. BenQ was occupied mainly with TFT panels, which the company made a good showing with. Setting out to become a player with a world-wide famous brand, BenQ lacked a credible portfolio of devices, so Siemens Mobile’s offer looked very fetching.

In the first half of 2005, Siemens’s mobile division had turned into a real pain as it had been losing from 1,5 to 2 mln. Euro a day, furthermore by June its share went down to 5,4% (according to Strategy Analytics). Apparently, only a miracle or an incredibly successful and awesome line-up could save the company’s day. Over at Siemens they decided to reject the latter idea, as they were regarding things in a sober light – by that moment the amount of developers had been reduced to the utmost (over two years a part company’s staff had been laid off in order to cut down expenses). The remaining team could not support the already existing handsets and develop software for new ones – that was too much for them. As a result ordinary consumers saw awfully written software, crudeness of handsets and recession of Siemens-branded devices’ reputation that has started in 2003, to the point when they are considered as unstable, buggy handsets. Regrettably, Siemens was not in habit of correcting own mistakes – instead the company’s managers kept spreading high-flown words. Giving an interview to me, one the company’s directors was very proud to report on the success Xelibri line-up had, even though by then it was not a secret that this range had turned out to be a deafening failure, while all developments in this field had already been shut down. The same can be said about the company’s attempts to somewhat stabilize the disorder in its business – the real deeds got replaced with grandiloquent words.

Therefore, it wasn’t a stunning event when Siemens Mobile was singled out into a stand-alone division (juridical person) and handed in to BenQ. I repeat – handed in here means gifted. Apart from this present, Siemens was to pay 250 mln. Euro and buy BenQ’s shares to the amount of 50 mln. Euro. I will take such liberty and cite several more clauses of the deal:

BenQ gets the rights for using Siemens brand for 18 months from the moment the contract is signed and joint rights for the BenQ-Siemens brand for 5 years

Siemens gives away its factories in Brazil, Manaus, and in Germany, Kamp-Lintfort

BenQ acquires the rights for using intellectual property and patents held by Siemens Mobile.

For Shanghai’s factory and R&D center a joint company is established, managed by representatives of Siemens and BenQ. BenQ guarantees operation of the factory and its load for 3 years

BenQ gets the Siemens's share of 8.4 percents in the Symbian consortium

Siemens buys 2 percent of BenQ's share for the 50 mln. Euro

Siemens invests 250 mln. Euro into the integration of its department with BenQ

On October, 1 of 2005 BenQ Mobile started its operating activities and acquired access to everything that had been in property of Siemens Mobile before. The first announcement to come was a dashing statement that by the end of 2006 the company would get to the new level of profitability and start generating profit. However not single thing could back up such statement. The following months displayed that the process of merging two companies was proceeding roughly and at slow pace. After transferring the mobile division to BenQ’s balance, Siemens were not too ceremonious and frequently insisted on vacation of old offices in the shortest possible time (for example, they did that with the Russian office). The mother-company, Siemens, just got rid of its headache and turned another page in its history.

It seems that over at BenQ Mobile they didn’t fully understand what burden they were going to drag along. The first and at the same time the most fatal mistake was keeping the old managers in their offices – these were people who had ruined Siemens Mobile, nevertheless for some reasons the new owners considered them to be “skilled governors”. This resulted in wrecking of the plans on launching new products, dramatic worsening of the company’s market shares, which hadn’t been all that good anyway. By the end of the second quarter of 2006 the world-wide share of BenQ Mobile had been halved and made about 3 percent (according to various sources)

I really liked a frank statement made by one of Nokia’s vice-presidents, when he was asked a “routine” question – what his company was going to do in order to cope with the threat posed by BenQ Mobile. The questing came up only due to the newcomer’s provoking intentions and statements. The answer, though, was perfect: “Two hens wont’ make an eagle”. Indeed, how could the management that had shattered the company, aim to achieve some sort of success in even worse conditions?

Strictly speaking, even after that the company’s course didn’t change a bit: in the beginning the company merged two ranges, which caused mess on the market and a bit later revised this decision. Even the most long-standing partners broke off with the company – i.e. T-Mobile refused to sign for the line-up’s flagship, BenQ Siemens EF91, reasoning that with “differing approach to marketing and strategy”. At 3GSM Congress that took place in February, this model was introduced with all due pomp, as the Europe’s first handset to feature HSDPA. For some reasons, yet unknown, it was named “commercial”, but even now mass sales haven’t initiated yet, while these few lots that have been produced are to be sold in Taiwan. Managers of BenQ Mobile haven’t managed to convenience partners of their efficiency and ability to control the situation (that’s what Sony Ericsson did).

Once in two months BenQ released press-releases reporting on increasing material losses brought by the mobile division, but claiming that everything was getting right in the near future. Such documents left twofold impressions, especially against the background of Motorola’s latest acquisition – Siemens’s R&D-centre, which was the property of BenQ back then. In other words, to somehow offset losses, the company started gradually selling out its assets.

By the end of September BenQ Mobile had suffered 600-million Euro worth losses (762 mln USD; at that, Siemens had paid only 80 mln. Euro on account of the initial contract for setting up a joint venture – the rest of money, as Mr. K Lee, the Chairman of board of directors of BenQ claimed, were to arrive during the fourth quarter of 2006. At the press-conference Mr. Lee put special emphasis on the fact the Siemens would implement all clauses of the signed contract. That’s the place where the main plot starts at – we are going to return to this point a bit later.

In its turn, Siemens Mobile management could not just shut down the factories, as in that case entitlement payments to employees would have been enormous (only in Germany there are 4000 workers, and keep in mind how stringent the German law is). Furthermore, bankruptcy of the company would have directly affected Siemens as well by reducing its capitalization and ruining its reputation. So it made more sense to let someone else do that.

Management of BenQ at the press-conference held on September, 28, officially announced that it was going to declare the German division bankrupt and turn to the corresponding German laws, to make the government appoint an external governor (which guarantees that all debts will be paid off). In fact, it is Siemens Mobile that is going into bankruptcy, with all factories and offices located in Germany – at present, after all employee layoffs, these are 3000 people. The Brazilian plant, handed in to BenQ Mobile as well, hasn’t been declared bankrupt yet, but its state of affairs is being examined. Considering the established situation, one might assume that this factory will go bankrupt a bit later on – today it might generate needless hype.

Now BenQ Mobile is getting to exist only on the Asian market – this decision was made long before the official announcement. This point of view is confirmed by the fact that while stating importance of maintaining its shares on the European market, the company establishes own stores in Taiwan – all investments aimed at brand development flow into the Asian market, which is BenQ’s homeland. Strange, isn’t it? It gives a feeling, that someone in the company realizes that soon Europe will be a market beyond reach for BenQ Mobile’s products. It’s seems to be too much to think of it as a coincidence.

While the German offices and factories of Siemens are going bankrupt, offices in other countries formally have nothing to do with this. But it’s all about “formally” here. In BenQ Mobile’s structure all customer care centers were located in Germany – from there they managed logistics all over Europe, spare parts supplies, planning etc. Being paralyzed, the German office will affect operation of this service as well, which leads to avalanche of customer care issues. Starting from January, 2007, or slightly later, these problems will fully emerge. However BenQ Mobile doesn’t care much about this issue, as the company is aiming to develop further on the Asian market only, while Europeans will get as many supplies as the company’s zealous followers require. It may seem that September, 28 is the day that the company dies, however its “wonderful” management could not miss the chance to make a statement.

On September, 30 in Munich an urgent press-conference was called, where Clemens Joos objected to bankruptcy and insisted, that «There is a chance this company may survive… we have restructured to about 70 percent». Also, he called to consumers with a request to buy BenQ Siemens handset to help the company in its hour of need. As to me, it’s the utmost level of disrespect displayed by managers who have ruined the company and are now trying to burden users with the company’s problems.

At any rate, on Friday an external governor got appointed to the company, who uttered some words to various periodicals that he had already received buy-out offers from its competitors. Whether there actually are companies wishing to acquire this division or not is somewhat obscure – most likely, there are either none at all, or some willing to purchase the company at an extremely low price.

But it is another story altogether. The union declares that it is Siemens that should accept full responsibility for bankruptcy and this company alone should pay according to the stringent German law. A very elegant solution, as it’s impossible to obtain something from BenQ, so eventually Siemens is getting the strike it was initially trying to avoid.

Siemens has also made some statements, including the one regarding legal actions against BenQ. What does this stand for is unclear, but at the end of the day BenQ might not receive the money promised as a contribution for an unprofitable division.

Suits in such delicate topic may last for several years, but the fact is, Siemens Mobile’s legacy has been ravaged – people, who built up the name for the company in the past have been picked up by other manufacturers, so that the best developers are now working for Motorola, Nokia, and other brands. The company’s remaining solutions may be re-launched, but this will inevitably lead to a clash with upcoming models by BenQ, based off the same platforms.

For users this bankruptcy means that in 6-7 months the market will get rid of BenQ-Siemens branded handsets – their share is going to constantly drop down. Though a number of markets will be on the company’s priority list (including the Russian one), where it will try to maintain sales. However the initiated wave has already reached consumers, which means the fourth quarter will see decrease in interest in the company’s handsets and therefore very poor sales. German Siemens-branded devices are non-existent at all now. In the near future BenQ-Siemens label will be carriedâ by moderately appealing low-quality handsets (which is typical for Siemens) tailored to Asia. In light of missing service in European countries, and on the Russian market as well, servicing of such handsets will cause certain difficulties. All in all, it’s the true end of the story for Siemens-branded mobile phones, with all their ups and downs. And there is no way we are going to see any German Siemens’ devices come again ever. Rest in peace, as they say…